Strong Ann Arbor economy shows in higher commercial occupancy in 2017

The 2017 Year-End Vacancy Report is now available from Ann Arbor-based real estate firm Swisher Commercial, and the latest findings indicate decreasing vacancy across several areas in Ann Arbor and both growing and changing business trends.

Wise said results of the report, created by Swisher Commercial’s real estate agents based on sales data and observation, were not shocking based on what he witnessed in Ann Arbor real estate in 2017.

“I was not surprised to see the vacancy rate drop because we haven’t had any substantial new supply,” Wise said. “I think we all feel pretty comfortable saying the Ann Arbor economy is moderately strong and that means business is growing.”

The report includes eight sub-markets, six of which decreased and two that increased in vacancy in 2017, along with data that Wise said reveals smaller stories within each of the sub-markets.

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Courtesy of Swisher Commercial

Downtown Office Area

While he called it interesting and a notable change that the vacancy rate in the Downtown Office Area increased in 2017, Wise said it was “nothing alarming” and isn’t causing any sleepless nights for real estate agents at Swisher Commercial.

“That’s still a very high vacancy rate and probably a positive from the standpoint of giving some growth opportunities for companies who need more office space,” Wise said.

Whether the vacancy rate is at 2.1 percent, like in 2016, or this year’s 3.6 percent vacancy, Wise said either figures qualify as a very tight real estate market.

One reason 2017 saw a slight increase in the vacancy rate in the Downtown Office Area is because of rising rental rates, Wise said.

“Everyone has noticed rental rates have increased downtown and that might be part of the reason for this slight increase,” Wise said. “Some companies may be saying they want to be downtown but can find office space less expensive elsewhere.”

The report also notes the availability of public parking and companies hiring in Ann Arbor as possible factors in this area's vacancy rate.

"While alternative transportation is becoming more popular, cars are still the norm, leading many businesses to hesitate renting office space downtown if they are unable to secure parking for their employees," the report said.

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Courtesy of Swisher Commercial

North Office Area

With 1.6 percent vacancy reported, Wise said the North Office Area is not offering up much office space for more businesses or companies looking at Ann Arbor.

“Our conclusion is that the biggest factor there is the type of businesses that are in that north quadrant seem to be very solid, some growing from within and absorbing space and not moving out,” Wise said.

There were at least two spaces of more than 5,000 square feet that were vacant in the North Office Area in 2017 that Wise noticed took some time to fill up. Agents rely on conversations and observations to know why a space may or may not be attractive to potential tenants, he said.

“Numbers don’t always tell the whole story,” Wise said.

It could mean demand is not as robust as agents believe or businesses are taking time to decide what area of Ann Arbor would be best for their customers and employees.

“I think there are businesses who are pausing to consider the high rental rates of downtown Ann Arbor but it’s clear many of the software companies find it highly desirable,” Wise said. “Some of them are pausing and considering more traditional office space in the north or south or east or west market. Some are making that choice, just for the sake of a lower rental rate.”

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Courtesy of Swisher Commercial

East Office Area

The East Office Area experienced the most dramatic change in vacancy in 2017, decreasing from 16.6 percent to 9.7 percent in one calendar year.

It was this part of the report that surprised Wise the most.

“There was a lot more activity,” he said. “I take that to mean businesses are growing and finding success and choosing office space in that east market.”

He pointed out that the East Office Area includes just over 500,000 square foot of office space, a considerable amount less than other areas included in the 2017 report.

The East Office Area is attracting not only healthcare companies that do not require high-profile office space but other industries that prefer lower rental rates over downtown space.

“In the last year, we saw attorneys, engineers and high-tech companies renting in that area,” Wise said. “Part of that change in percentage is some growth in the social service-related companies and healthcare-related companies. That combination brought that big swing.”